Indian markets have followed the global trend, dropping 3 per cent as analysts predict the course correction might last a few days.
New Delhi: Spooked by an aggressive global sell-off, markets in India dropped 1,250 points as they opened Tuesday, leaving investors shocked. Although the downswing is expected to last a few days, there is no need to panic about the fundamentals, analysts said.
The benchmark BSE Index fell over 2.7 percent to 33,482.81 points while NSE dropped 290.05 points to 10.376.50 moments after opening on Tuesday.
Experts have tried to attribute a variety of reasons to the current spate of volatility, including an expected market correction following a robust upward swing and the fears related with rising US bond yields.
If you look at the larger context of what has happened, this (drop) is largely a reflection of what has happened in the global markets, said a market economist who spoke on condition of anonymity.
Even though the benchmark indices plummeted, analysts said there is no need to panic yet as the fundamental economic recovery globally, as well as in India, remains on track with good macroeconomic indicators in place. Analysts said this is not a re-run of a 2008 downturn, when the markets had run well ahead of the economy.
Even though the correction is expected to sustain over the next few days, the markets will land on stable ground, they said. In addition, since the current reaction in the domestic markets is hedged against the global reaction, the downside may persist but the pace of the drop may not.
Globally, markets have shown robust performance over the past months, driven by positive economic growth and overall expectations of corporate profitability.
Asia: US Overhang
The selloff in the US markets overnight circled back to Asia with Japan’s Nikkei ending below 4.73 per cent, Hang Seng dropping 4.45 per cent, and Topix closing down 4.40 per cent.
With the US gradually tightening monetary policy, and the Federal Reserve indicating three rate hikes in 2018, the fears of losing easy liquidity have come back. Over the course of 2017, US central bank interest rates fell in the range of 1.25-1.5 per cent after remaining at sub-zero levels for over a decade.
Globally, there has been a lot of complacency in terms of the availability of easy liquidity, says an analyst. At some point you were bound to see a correction given the market momentum was driven by liquidity. The current mood is seen as a reaction to the wiping out of global and domestic liquidity by way of interest rate action.
US: In Correction Mode
Overnight the US markets witnessed a heavy sell-off following the wage report that indicated average hourly salaries for the month of January grew 0.3 per cent. This may have triggered fears that higher wage growth would increase prices across the board, and may make it harder to keep a lid on inflation going forward.
In addition, the concerns over additional policy tightening by the US Fed have fueled a bond yield rise, and ultimately the current market correction.
The widespread panic has, however, not rattled analysts so far and this is largely being seen as a correction and not an overall trend. However, the current mood is expected to last a few days before markets catch their breath.